9911796707
TMI Blog2024 (1) TMI 1271X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee is available on record and related documents so found during the course of survey are stated to be in possession of the Revenue authorities. Apparently, the AO has failed to take into consideration the statement of the partner of the assessee recorded during the course of survey holistically, and other documents and findings of the survey team which are very much part of the records The mere fact that survey/search proceedings have been initiated at the business premises of the Assessee doesn't mandate the Assessing officer to automatically invoke the deeming provisions and before invoking the deeming provisions, he has to call for the explanation of the Assessee and only where the explanation so offered is not found satisfactory, he can proceed and invoke the deeming provisions. We find that in the present case, the difference in stock found by the authorities has no independent identity and it is part and parcel of the entire stock. Therefore, it cannot be said that there is an undisclosed asset which existed independently and thus, what has been declared before the Department is received from business and it is not any investment, since it cannot be co-related with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the survey proceedings. During the course of survey, the assessee had surrendered Rs. 40,00,000 /- by surrender letter dated 11.10.2018 including Rs.21,00,000/- on account of excess stock found, Rs. 9,00,000 /- on account of excess cash found and Rs. 10,00,000/- on account of unexplained debtors, based on impounded slips. Thereafter, the assessee was asked to show cause as to why the surrendered amount of Rs. 40,00,000/- should not be taxed as per the provisions of Section 115BBE of the Income Tax Act. The assessee filed reply but the same was not found tenable by the AO. Thus as per the AO, the sources of such investment in excess stock, receivables and excess cash remained unexplained and the unaccounted investment and money cannot be treated as income from regular business income. Moreover, as per the AO, the offering of such income without any supporting evidence as to the nature and sources of the income which were not recorded in the books of account of the assessee, itself tantamounts to having accepted that the sources are unexplained and thus the excess stock and receivables from debtor; recorded on the impounded documents were considered as unexplained investment of the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that income/investment, whose source is not explained, will still be classified as income under any head u/s 14. It would be, therefore, impermissible to attempt and classify such incomes under any of specific heads, even if there is any activity which can be remotely/indirectly linked to such deemed income. The word 'source' in the same context would refer to nexus of such income generating activity/transaction with name and identity, creditworthiness of person with whom such activity/transaction was done along with proving the genuineness of transaction also. The requirement of proving these 3 essential ingredients to prove the source in order to escape the rigors of the deeming fiction has been upheld universally. The conjoint burden of proving the 'nature and source1 is therefore, not restricted to merely claiming the nexus of any activity/transaction to a particular credit/income/asset but also requires to establish with cogent evidence the nexus of such activity/transaction with source also by providing the name and identity, creditworthiness of person with whom the activity/ transaction was done along with proving the genuineness of transaction. Thus, for the u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. CIT in ITA No. 106 of 2011 dated 27.04.2011, (5) The Hon'ble Supreme Court in the cases of Roshan Di Hatti vs. CIT [1977] 107 ITR 938 (SC) (6) Hon'ble ITAT Cochin Bench, Cochin in the case of M/s. Bhima Jewellers vs. PCIT Kozhikode in ITA No. 208/Coch/2018, Assessment Year 2013-14 7. The ld. CIT(A) held that these decisions also bring out a clear legal position that for any income to be treated as business income, the nexus/the source, has to be established; that hence, the action of the AO in applying the rate as prescribed u/s 115BBE on the surrendered income included in the ITR, treated by the AO as income u/ ss 69A 69B in the assessment order was found sustainable; that keeping in view the above facts and discussion, it was being held that the AO has rightly treated the surrender of Rs. 40 lacs on account of excess cash, excess stock and receivables found during the survey as deemed income u/ ss 69A 69B and to be taxed as per provisions of Section 115BBE of the Income Tax Act, 1961 and hence the same was being confirmed. 8. The ld. Counsel for the assessee has contended that the appellant is a partnership firm and is engaged in the business of manufacturing of hosier ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... submitted that after the survey, the entries in the books of account has been passed and proof of the same has been submitted to the assessing officer in the form of ledger account. Cash has been increased in the books of account, slips have been entered in the books of account as due from debtors and entry relating to the stock has also been passed in the books of account. So, once all the entries have been passed in the books of account the same will be out of the preview of the Sections 69, 69A, 69B. While assessing the income of the assessee, the Assessing Officer has wrongly applied the sections, as when he was assessing the income, entries in the books of account existed and the assessee has given the proof of the same during assessment proceedings. The case law quoted by the Assessing Officer while assessing the income does not relate to the present case. As regards asking for the source of investment by the Assessing Officer, it has been submitted that the source of investment was purely from the business in which the assessee is engaged. 9. It has been submitted that during survey, the excess stock found was not due to quantity differences, it was due to the valuation diff ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ks of account. Therefore in view of the facts of the case and the material available on record, it was found that the sources of the claimed debtors were unsubstantiated and remained unexplained and thus, the provisions of section 69B of the Income Tax Act, 1961 were applicable. 9.3.1. The ld. Counsel for the assessee contended that the reply given by the assessee has not been understood by the Ld. Assessing officer. During the survey, no serial number of the slips has been found on the slips. When the slips were shown to the assessee then it was clear between the survey team and the assessee that these slips are those slips which were the evidence of sale of hosiery goods, the same items which the assessee is dealing in its regular course of business and not accounted for in the regular books of accounts and hence, the assessee has surrendered the same as additional business income. The survey team visited the business premises and found some slips of sale of hosiery goods and mounted pressure for surrender, which has been accepted. The same amounts to undisclosed business income. The Assessing Officer failed to understand this basic thing and assessed the debtors under Section 69 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that regarding providing of any documents for the identification of the sundry debtors to whom the material had been sold, they were very small traders and neither the assessee was dealing regularly with them, nor were they regularly engaged in the trading of the hosiery goods; that the assessee was trying to contact all of them and was getting the copy of Aadhar Card as proof of identification to be provided to the ld. CIT(A) and the assessee was assuring to provide the same on the next date of hearing; and that it was prayed that the appeal be kindly allowed. An adjournment was sought so as to enable the assessee to give a more elaborate reply and case law in favour of the assessee, as well as the balance information asked for. It was so submitted by the assessee vide letter dated 23.12.2022, a copy whereof is at APB 39. 11. The ld. Counsel for the assessee has contended that the Ld. Commissioner of Income Tax (Appeals) has erred in law as well as on facts in upholding the invocation of the provisions of section 69A of the Act on the surrendered amount of Rs.40,00,000/-, treating the same to be income from other sources, as against declared business income, which is arbitrary and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was done along with proving the genuineness of transaction also. The requirement of proving these three essential ingredients to prove the source in order to escape the rigors of the deeming fiction has been upheld universally. The conjoint burden of proving the nature and source is, therefore, not restricted to merely claiming the nexus of any activity/ transaction to a particular credit/income/asset, but also requires to establish, with cogent evidence, the nexus of such activity/ transaction with the source also by providing the name and identity, creditworthiness of person with whom the activity/ transaction was done along with proving the genuineness of transaction. Thus, for the unrecorded excess cash, excess stock and receivables found during survey proceedings, there can be no presumption to treat the value representing such excess cash, excess stock and receivables as application of business income in the absence of any evidence of earning that income or details as to when, how and from whom such income was derived which has been excess cash, excess stock and receivables. It has been contended that the nature of the income has been duly explained during the course of surve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted, there has to be a finding that the Assessee has made investments during the financial year in the stock and by way of advances, such investments are not recorded in the books of account so maintained by the Assessee, and the Assessee offers no explanation about the nature and source of the investments or the explanation so offered is not found satisfactory in the opinion of the AO. Similarly, for the deeming provisions of section 69A to be attracted, there has to be a finding that the Assessee was found to be owner of cash so found at the time survey, such cash has not been recorded in the books of account so maintained by the Assessee, and the Assessee offers no explanation about the nature and source of the cash or the explanation so offered is not found satisfactory in the opinion of the AO. Likewise, for the deeming provisions of Section 69B to be attracted. There has to be a finding that the amount expended on making investment in or acquiring any bullion, jewellery or other valuable article exceeds the amount recorded in this behalf in the books of account maintained by the assessee for any source of income and that the assessee has not offered any explanation about such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the advances are related to its business, however since the same have not been recorded in the books of account, he has offered the same to taxation. Similarly, the stock physically found has been valued and then, compared with stock as recorded in the books of account, thus, there is clear nexus of stock with the Assessee's business. The statement of the partner of the assessee is available on record and related documents so found during the course of survey are stated to be in possession of the Revenue authorities. Apparently, the AO has failed to take into consideration the statement of the partner of the assessee recorded during the course of survey holistically, and other documents and findings of the survey team which are very much part of the records. Following the surrender so made during the course of survey, the Assessee has honored the surrender so made and has offered the additional income as business income in its return of income and has paid due taxes thereon. 17. We find that through various questions raised during the survey, partner of the assessee was asked about the nature and source of its income and the various discrepancies found during the survey. In re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ches of the Tribunal and which has been reiterated from time to time. The statement of the Assessee has to be read as a whole and not in piecemeal especially where the Revenue is relying on the same statement and in such circumstances, the defence available to the Assessee in terms of part of the statement not been considered by the Revenue cannot be ignored. The mere fact that survey/search proceedings have been initiated at the business premises of the Assessee doesn't mandate the Assessing officer to automatically invoke the deeming provisions and before invoking the deeming provisions, he has to call for the explanation of the Assessee and only where the explanation so offered is not found satisfactory, he can proceed and invoke the deeming provisions. 19. In case of Gandhi Ram( ITA No. 121/CHD/2021 dated 04/ 08/2022), speaking through one of us, it was held by the Chandigarh Bench of the Tribunal, that it is like laying a general rule which is beyond the mandate of law that wherever there is a survey and some income is detected or surrendered by the Assessee, the deeming provisions are attracted by default and by virtue of the same, provisions of section 115BBE are attract ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rvey is not separately and clearly identifiable but is part of mix lot of stock found at the premises which included declared stock as per books and also the excess stock as computed by the Survey Officers and therefore the provisions of Section 69B cannot be made applicable as primary condition for invoking the said provision is that the asset should be separately identifiable and it should have independent physical existence of its own and since excess stock as a result of suppression of profit from business over the years and has not kept identifiable separately but as part of overall physical stock found, the investment in the excess stock has to be treated as business income and thereafter has referred to the decision of the Tribunal in case of Fashion Fashion World Vs. ACIT( IT Appeal No. 1634 (Ahd.) of 2006, dt. 12/02/ 2010) wherein the Tribunal had observed as under: 11. But this does not mean that loss computed under any of the five heads mentioned in section 14 - ( i) 'salary', (ii) 'income from house property', ( iii) 'profits and gains from business or profession', (iv) 'capital gains' and (v) ' income from other sources' - cannot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re it should be considered to be taxed under section 69 on the premises that such excess investment is not recorded in the books of account and its nature and source is not identifiable. Once such excess investment is taxed as undeclared business receipt then taxing it further as deemed income under section 69 would not be necessary. Therefore, the first attempt of the assessing authority should be to find out l ink of undeclared investment/expenditure with the known head, give opportunity to the Assessee to establish nexus and if it is satisfactorily established then first such investment should be considered as undeclared receipt under that particular head. It is only where no nexus is established with any head then it should be considered as deemed income under section 69, 69A, 69B 69C as the case may be. It is because when Assessee fails to explain satisfactorily the source of such investment then it should be taxed under section 69, 69A, 69B 69C as the case may be. It should not be done at the first instance without giving opportunity to the Assessee to establish nexus. Therefore, there is no conflict with the decision of Hon. Gujarat High Court in the case of Fakir Mohmed Haj ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... heard rival contentions and perused the material available on record. Undisputed facts emerged from the record that at the time of survey excess stock was found. It is also not disputed that the Assessee is engaged in the business of jewellery. During the course of survey excess stock valuing Rs. 77,66,887 /- was found in respect of gold and silver jewellery. The Coordinate Bench in the case of ChokshiHiralalMaganlal vs. DCIT, 131 TTJ (Ahd.) 1 has held that in a cases where source of investment/ expenditure is clearly identifiable and alleged undisclosed asset has no independent existence of its own or there is no separate physical identity of such investment/ expenditure then first what is to be taxed is the undisclosed business receipt invested in unidentifiable unaccounted asset and only on failure it should be considered to be taxed under section 69 on the premises that such excess investment is not recorded in the books of account and its nature and source is not identifiable. Once such excess investment is taxed as undeclared business receipt then taxing it further as deemed income under section 69 would not be necessary. Therefore, the first attempt of the assessing authorit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ice has been brought on the books and now forms part of the recorded stock which can be subsequently sold out and the profit/loss therefrom would be subject to tax as any other normal business transaction. Secondly, the unrecorded investment which has gone in purchase of such unrecorded stock of rice has been recorded in the books of accounts and offered to tax by crediting the said amount in the profit and loss account. Had this investment been made out of known source, there was no necessity for Assessee to credit the profit/loss account and offer the same to tax. Accordingly, we do not see any infirmity in Assessee's bringing such transaction in its books of accounts and the accounting treatment thereof so as to regularise its books of accounts. In fact, the same provides a credible base for Revenue to bring to tax subsequent profit/loss on sale of such stock of rice in future. 2.11. Having said that, the next issue that arises for consideration is whether the amount surrendered by way of investment in the unrecorded stock of rice has to be brought to tax under the head business income or income from other sources . In the present case, the Assessee is dealing in sale of foo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... airs to building and advances to staff, which being relatable to business carried on by the Assessee was already included as income from business. 13. In the present case, we see that the Assessing Officer has nowhere disputed the business losses incurred by the Assessee. The books have not been rejected. It was stated at the Bar that even at the time of survey, in the trading account prepared by the survey team, there were losses incurred by the Assessee. All these facts have not been disputed by the Assessing Officer. Further, the surrender made by the Assessee was on account of cash found during the course of survey, discrepancy in the cost of construction of building, discrepancy in stock and discrepancy in advances and receivables. By no stretch of imagination, any of these incomes apart from cash can be considered as income under any head other that the 'business income'. 14. Nowhere in his order the Assessing Officer has been able to bring on record the fact that the income surrendered during the course of survey was not out of the business of the Assessee. Also nowhere he has objected to the heads under which the Assessee had surrendered these amounts, i. e. cash, c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1. Since the company is incurring losses in current F.Y.2012-13, the surrendered income will be adjusted against these losses. [Extracted from the impugned assessment order; pages 5 6]. 20. Clearly, it is evident from the above that the surrender was on account of debtors/receivables relating to the business of the Assessee only. The Revenue has accepted the surrender as such, as being on account of receivables. It follows that the debtors were generated from the sales made by the Assessee during the course of carrying on the business of the Assessee, which was not recorded in the books of the Assessee. Though the said income was not recorded in the books of the Assessee but the source of the same stood duly explained by the Assessee as being from the business of the Assessee. Even otherwise no other source of income of the Assessee is there on record either disclosed by the Assessee or unearthed by the Revenue. The preponderance of probability therefore is that the debtors were sourced from the business of the Assessee. Therefore, there is no question of treating it as deemed income from undisclosed sources u/ s 69, 69A, 69B and 69C of the Act and the same is held to be in the nat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o be allowed as per the provisions of law. As far as the income surrendered and to be assessed u/ s 69, 69A, 69B and 69C of the Act, as held above before us, the same is to be subjected to tax as per the provisions of section 115BBE of the Act. 27. Similarly, the Coordinate Chandigarh Bench in case of M/s. Sham Jewellers Vs. The DCIT (Supra) has held as under: 10.17 Ground Nos. 8 9 challenge the action of the lower authorities in applying the provisions of section 115BBE and thereby charging tax at the rate of 60%. The main thrust of the arguments of the Ld. AR has been that all the additions made or sustained relate only to the business income of the Assessee and that nowhere in the assessment order has it been alleged that some other source of income had been detected which gave rise to additional income. It is seen that during the course of assessment proceedings, the various explanations submitted by the Assessee have duly mentioned that the surrendered income was derived from the business. A perusal of the assessment order would also show that nowhere in the body of the assessment order, the AO has even contradicted this explanation of the Assessee. The AO has not brought on r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed sources u/ s 69, 69A, 69B, or 69C of the Act and the same was held to be in the nature of business income of the Assessee. 10.20 Thus, as in the present case, where the source of investment or expenditure is clearly identifiable and the alleged undisclosed asset has no independent existence of its own or there is no separate physical identity of such investment or expenditure, then, first, what is to be taxed is the undisclosed business receipt invested in unidentifiable unaccounted asset and only on failure can it be considered to be taxed u/ s 69 of the Act and further where once such investment or expenditure is brought within the purview of tax as undeclared business receipt, then taxing it further as deemed income u/ s 69 would be completely out of place. 10.21 Similar view was taken by the Coordinate Bench of ITAT Ahmedabad in the case of ChokshiHiralalMaganlal Vs. DCIT reported in 131 TTJ 1 (Ahd.) 10.22 It is also seen that the Ld. CIT(A) has relied on the judgement of the Hon'ble Punjab Haryana High Court in the case of Kim Pharma Ltd. Vs. CIT in ITA No. 106 of 2011 (O M) and the Ld. CIT DR has also quoted the same in his arguments before us. However, after going th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the course of survey operation in the possession of the Assessee company and the same was surrendered as additional income for the year under appeal. The Assessee has failed to explain the nature and source of the said cash found which was not recorded in the books of account, though while surrendering the additional income it was admitted by the Manager of the Assessee company, in the statement recorded during the course of survey that the said additional income is its income from other sources. The Hon'ble Gujrat High Court in Fakir Mohmed Haj Hussain vs. CIT had held as under : The scheme of sections 69, 69A, 69B, and 69C of the Income-tax Act, 1961, would show that in cases where the nature and source of acquisition of Money, bullion, etc., owned by the Assessee or the source of expenditure incurred by the Assessee are not explained at all, or not satisfactorily explained, then the value of such investments and money or the value of articles not recorded in the books of account or the unexplained expenditure may be deemed to be the income of such Assessee. In the absence of the explanation / evidence regarding the sources of the additional income being satisfactorily ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ess. However, in respect of cash found during survey, which was not reflected in the books of account, no source was declared by the Assessee and in the absence of nature of source of cash being proved, the same is not assessable as income from business. In the circumstances, we uphold the order of the CIT(A) in including the additional income as deemed income u/s 69A of the Act and not allowing the benefit of the business losses determined against the said deemed income. The grounds of appeal raised by the Assessee are dismissed. 29. Thereafter, the matter came up for consideration before the Hon'ble Punjab Haryana High Court and the Hon'ble High Court has stated that the AO, the ld. CIT(A) and the Tribunal after considering the factual aspect noticed that the amount surrendered during the survey was not reflected in the books of account and no source from where it was derived was declared by the Assessee and therefore it was deemed income of the Assessee under section 69A of the Act and accordingly the findings of the Tribunal were affirmed and it was held that no substantial question of law arose and the appeal of the Assessee was dismissed. We therefore find that the st ..... X X X X Extracts X X X X X X X X Extracts X X X X
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